The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Facebook will be settling a lawsuit that challenged the legality of Sponsored Stories

Last week, a San Francisco federal judge threw a possible wrench into Facebook's plans to settle its 'Sponsored Stories' lawsuit. (In case you haven't been following, this is the suit filed by Facebook users that don't like that when they 'Like' something on Facebook, the company might turn them into a spokesperson for the coffee shop, sewing machine, muscle car, or drum of sex lube they 'Liked' in ads directed at their friends.) U.S. District Judge Richard Seeborg questioned the settlement Facebook had reached with class action attorneys that would have put $10 million in the attorneys' pockets, $10 million in a cy prey fund to be distributed to pro-privacy groups, and a relatively paltry $37K for the plaintiffs who filed the suit. The settlement also requires that Facebook give users more control over how their faces wind up in ads on the site, which could cost the company $103.2 million in future revenue according to an economist hired by the plaintiffs who got a look at Facebook's finances.

Seeborg stepped in on the case after Judge Lucy Koh recused herself without explanation (perhaps because her hands are full with Apple-Samsung drama). Seeborg is shaking the settlement process up. In addition to pushing Facebook to reveal Sponsored Stories revenue figures that have been redacted in court filings, Seeborg's expressed skepticism about the settlement that both sides have agreed to, reports Wired.

“Why shouldn’t the cy pres be $100 million?” U.S. District Judge Richard Seeborg asked attorneys on both sides.

He suggested he might order the parties to return to provide more information on how it reached that amount. He was concerned that Facebook said the deal might cost them $100 million in advertising revenues, but only $10 million is being paid out. And that doesn’t calculate the amount of damages for the 100 million Facebook users who have already appeared in Sponsored Stories, he said.

I'm sure the judge was thinking of Nick Bergus here, the Facebook user who famously wound up as a spokesperson for a 55-gallon drum of sexual lubricant this Valentine's Day, thanks to Sponsored Stories.

“I’m not suggesting there is anything wrong with $10 million,” he said. “My question is: Why is it $10 million?”

Back in 2009, Facebook paid $9.5 million to charities to settle the class-action lawsuit over Beacon, the company’s short-lived frictionless sharing of users’ purchases. (The company, of course, found ways to bring frictionless sharing back to life -- without liability --years later.)

In 2010, Google paid $8.5 million into a fund paid out to privacy education groups to settle a lawsuit over Buzz, which made Gmail users' private contact lists public. (It also suffered the failure that was Buzz, which users never took to)

This year, Netflix paid $9 million to settle a lawsuit that accused it of violating the Video Privacy Protection Act by holding onto users' viewing histories for years after they'd canceled their memberships. (The horror!) That money again will go to privacy protection groups.

The honest answer to this judge's "Why is it $10 million?" question would have been, "Because that's what tech companies pay to settle these things." (A class action lawsuit against Google for having its Street View cars sniff unprotected Wi-Fi networks is currently making its way through the California court system. Any one want to wager a a guess as to how much that will settle for?)